The UK government, through the HM Treasury, published a document soliciting views from a wide range of stakeholders and firms engaged in digital assets or DLT activities to formulate regulatory policy on cryptoassets and stablecoins.
The government has taken the consultative approach to ensure that the regulatory framework harnesses the benefits of new technologies, promotes innovation and competition, and minimizes risks to consumers and financial stability.
The consultation period closes on March 21.
— HM Treasury (@hmtreasury) January 7, 2021
The country, fresh from Brexit and warming up to life outside the European Union (EU) bloc, launched a cross-authority task force in 2018 to study the nascent cryptocurrency market.
The Taskforce concluded that distributed ledger technology (DLT) would impact several industries and provide real benefits to the financial services sector. It also found that the cryptocurrency market was still in the early stages of development, with no evidence that digital assets could deliver these benefits.
A rapidly evolving industry
However, a lot has happened since the Taskforce made its conclusions. The young industry is changing, with stablecoins providing a way for faster and cheaper payments, making it easier for people to transact or store their money.
Stablecoins are cryptocurrencies designed to reduce volatility and are often pegged to real-world assets or basket of assets.
The impact of stablecoins cannot be ignored, and the U.S. took note of this. The country proposed the STABLE ACT, a proposed law that would require stablecoin issuers to obtain a federal banking charter.
In a major development for the industry, the Office of the Comptroller of the Currency (OCC), the banking regulator in the U.S., recently set guidelines that pave the way for stablecoins and blockchains to be integrated into the U.S. financial system.
In a similar fashion, the UK government believes that certain stablecoins can play an important role in retail and cross-border payments (including settlement) if appropriate regulation is put in place.
Per the document, the UK’s near-term priority is to “ensure the framework supports the safe use of stablecoins.”
Stablecoin could pose a threat
The document claims that stablecoins pose several risks if improperly regulated.
Stablecoins potentially present risks to financial stability and market integrity. An outage or disruption in the stablecoin chain could leave consumers without access to their money.
At the same time, consumers could lose money through volatility or the stablecoin issuer fails. The document further highlighted that stablecoins have the potential to challenge the market dominance of existing financial institutions.